Mr Truss, who holds the transport portfolio, was backed by Treasurer
Joe Hockey
in pushing back against a bailout for Qantas but has not ruled it out. The airline has placed unprecedented pressure on the government to intervene, asking for it to guarantee ­Qantas’s debt.

After flagging the first-half loss on Thursday, Qantas chief executive
Alan Joyce
announced 1000 job cuts, a further $2 billion in targeted cost savings and the possible partial sale of assets such as its Qantas Frequent Flyer program and potentially Jetstar, as an attempt to unlock value within the airline and return it to profitability.

The Qantas Frequent Flyer business is potentially worth more than the airline itself, which has a market capitalisation to $2.2 billion. Its shares fell 13.5¢ to $1.07 after testing a one-year low of 99.5¢.

A bleak future

Mr Joyce warned the airline’s domestic business had a “bleak future" if it continued to compete on an unlevel playing field with rival Virgin Australia, which it largely blamed for its woes.

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Virgin is almost two-thirds owned by three foreign airlines, Etihad Airways, Air New Zealand and Singapore Airlines, which are government backed.

Qantas management has argued this ownership structure has allowed its rival to operate uncommercially racking up substantial losses, while offering cheap fares and putting on additional route capacity in the domestic market, which exceeded demand.

“Since early 2012, there has been an unprecedented distortion of the Australian domestic market, with Virgin Australia’s strategy to seek majority ownership and massive financial backing from foreign government-owned airlines," Mr Joyce said. “This foreign government capital has been used to finance dramatic increases in domestic capacity, with profound implications for the future of the Aviation industry."

However, Mr Joyce’s concerns struggled to convince Mr Truss, who made the point “the government isn’t a banker" while also warning that “clearly the government is not going to retrospectively change laws to disadvantage Virgin Australia".

Qantas’s management has argued for an equivalent of the Qantas Sale Act, which restricts foreign ownership in Qantas to 49.9 per cent, to apply to Virgin so the playing field was more level.

Another option put forward by Qantas was for the government to take equity in Qantas.

Truss says restructure required

Mr Truss said it was incumbent upon the airline to restructure its way out of its current difficulties with the government’s duty to create a favourable business environment.

Rather than take an equity stake in the airline it once privatised, the government may consider a direct guarantee, by recognising it as a government-related entity, alongside the four major banks.

It’s understood this is what Qantas management wants.

Mr Joyce also announced he would take a 38 per cent pay cut.

The board’s pay would be cut and there would be an overall pay freeze and no bonuses for executives in the current financial year.

He maintained he had board ­support.

There has been political resistance to changes to the Qantas Sale Act with fears if the airline fell into foreign hands then routes such as flights to remote locations like Longreach in Queensland might be cut.

Mr Truss repeatedly pointed out Qantas’s strengths including its cash reserves of $2 billion, its domestic ­market share of 65 per cent and customer loyalty.

Analysts cut forecasts

Analysts have argued that Qantas has contributed to its own financial difficulty by stubbornly refusing to budge from its target of keeping its 65 per cent market share.

Deutsche Bank analyst Cameron McDonald said he was forecasting a loss of $306m and did not expect conditions to improve in the second half. He’s expecting a full year loss of $611 million.

Analysts say the government will have to step in to preserve the airline’s credit rating.

Qantas is one of a handful of investment grade rated airlines in the world and relies heavily on its rating to maintain affordable cost of funds in addition to favourable leasing, hedging and ­payment arrangements with its counter-parties.

A loss of its investment grade Baa3 credit rating could have significant adverse consequences for the airline.

Moody’s has indicated the provision of government support would be credit positive for the airline, but the extent to which it was would depend on whether the government support relates to ­certain classes of debt; whether the ­government support is through letters or verbal support; or whether the ­government takes an ownership stake in Qantas. Qantas also blamed a high Australian dollar and high fuel costs – the worst since privatisation – as ­further reasons its earning have flown into the red.

The Opposition and the ACTU both urged the government to act immediately to end the uncertainty around Qantas.

Anton Tagliaferro, principal of fund manager Investors Mutual, said if the government didn’t step in then one of the airlines would have to back down from the ongoing capacity war.

“It’s incredible that you have two airlines in Australia, and the economy is doing quite well, and that neither of them seem to be able to make a reasonable return from their operations in Australia. "

Mr Hockey again expressed his preference to change the Qantas Sale Act and a reluctance to “prop up" a private company in any form.

“The government can’t do a hell of a lot other than ensure you have a stronger economy that ensures that all businesses have a chance to continue to grow and not only hold their employees but employee more people,’’ he said.